Globalisation and the Future of the Corporate Income Tax

Abstract

Concerns have been expressed that, in an era of high capital mobility, international tax competition will lead to an inexorable decline in taxes levied on capital, shifting the tax burden to the relative immobile inputs, labour, and land. Some view this as a threat to the financial and political underpinnings of the welfare state, which is based on the redistribution of income. On the other hand, as Mintz (1992) pointed out, with globalisation there may be more opportunities to shift the burden of taxation to foreigners, especially if other governments provide foreign tax credit, because globalisation may increase the share of the assets in the economy that are owned by foreigners. In this paper, I develop some analytical models to determine how these offsetting forces will affect the optimal rates of capital taxation in a small open economy.